During his testimony before the House and Senate this week, Federal Reserve Chairman Alan Greenspan noted that the Fed believes it likely that the business sector and the economy are poised to grow more rapidly, but that this positive economic situation is disguised by current geopolitical concerns. That is, "war worries" are the real economic problem, not -- in Fed lingo -- "…persisting strains and imbalances that have been misidentified as transitory."
In sharp contrast, preliminary results (based on 322 respondents) of a new Gallup/UBS Employee Outlook Index poll* suggest just the opposite. By an overwhelming 86% to 8% margin, employees at the nation's private sector, for-profit companies say it is the state of the economy, not the possibility of war with Iraq that is hurting their companies more right now. Though the margin of error for these preliminary figures is high (±5.7%), the message is clear: the potential for war is clearly having a major impact on Wall Street, but underlying economic fundamentals seem to be making a greater impression on Main Street.
How much impact is the high probability of war with Iraq -- even before war occurs -- having on various aspects of American business? Employees seem to feel that the impact of the pending war may be less significant than many economic observers suggest.
- While 18% of employees say the possibility of war with Iraq is making their companies' business a little worse or much worse, 9% actually say it is making their business a little better or much better, and 71% say it is having no effect.
- Similarly, 12% of employees say the possibility of war is making the employment situation where they work a little worse or much worse, while 7% say it is making that situation a little better or much better, and 80% say the possibility of war is having no effect.
- Fifteen percent of employees say company growth is a little worse or much worse because of the possibility of war, although as many (15%) say it is a little better or much better, and 70% say their growth is not being affected by the possible war.
- As far as employees are concerned, the greatest impact of the possible war with Iraq has been on profits. Twenty-three percent of employees say the profit picture at their companies is a little worse or much worse because of the potential for war, while 11% say it is a little better or much better, and 64% say the potential for war is having no effect on profits.
A War Slowdown/Recession?
Clearly, the impending war with Iraq is having a negative impact on American business. For example, it's only prudent for businesses to defer making new investments and hiring new employees in the current uncertain geopolitical climate. And, increasing oil prices clearly have an impact on business costs and profits.
But U.S. economic growth has been lethargic anyway. And, consumer and investor confidence has been tumbling. As a result, it should not be surprising that, at least as far as private-sector employees are concerned, the impact of the possible war is marginal and partially offset by the fact that some businesses are actually benefiting from the current war environment.
Further, the current war environment has resulted in a substantial increase in government spending at all levels. In addition to the usual war-related expenditures by the federal government, many state and local governments are being forced to increase their spending because of the heightened terror alert. These increases also help offset the reduced spending of companies alarmed by the potential for war.
This most recent employee survey is the latest in a series of Gallup's attitudinal economic measures suggesting that it is not the possibility of war that is doing the greatest damage to American business right now, but rather the current state of the economy. As a result, when the war does arrive, it may not bring the sustained economic improvement many economic prognosticators are anticipating, even if everything goes well.
*Results are based on telephone interviews with 322 adults who are employed with non-governmental, for-profit companies having five or more employees, aged 18 and older, conducted Feb. 3-6, 2003. For results based on the total sample, one can say with 95% confidence that the maximum margin of sampling error is ±5.7%.